Lawmakers considered what is driving American consumers toward electric vehicles and whether EV tax credits are necessary at a July 31 Senate Budget Committee hearing.
The hearing focused broadly on how — and whether — to boost EV manufacturing and sales in the United States. One sticking point was EV credits, available under Code Sec. 30D for new vehicles and Code Sec. 25E for previously-owned vehicles.
China’s dominance in the market was noted by several lawmakers and witnesses, but they disputed how to put US-based carmakers on equal footing. Regardless, there seemed to be consensus that consumer demand for EVs is growing.
Stability is key.
Witness Jesse Jenkins, a professor at Princeton University, emphasized in his testimony that “the most important thing Congress can do now for the EV sector is to provide policy certainty and continuity. By … avoiding abrupt changes in policy conditions, Congress can create the right conditions for America’s dynamic automotive sector to invest, compete, and meet consumers’ needs.”
Jenkins explained that the EV tax credits under the Inflation Reduction Act “have just been finalized in terms of their guidance. And many of the programs authorized and funded by the infrastructure law are authorized spend down through 2026.” He added to make to make “hundreds of billions of dollars of investments,” industry needs to be able to “count on a stable policy environment.” To do so, said Jenkins, lawmakers should provide “bipartisan support for the maintenance of existing policies.”
Dave Schwietert of the Alliance for Automotive Innovation seconded that, explaining that “the general public forgets about the long lead times in automobile manufacturing and production.” He explained that “policies that change today have a material impact, but they don’t fully get realized for years to come.” According to Schwietert, “that’s why that policy certainty is so important.” He called for continued incentives “to build resilient supply chains, to support consumers,” and to “attract investment in … jobs.”
Cost-benefit of EV credits.
The committee heard from several witnesses and Democrats on why they feel EVs are preferable to combustion engine vehicles. Senator Ron Johnson (R-WI) pushed witnesses on why “government subsidies” are needed if EVs have “so many appeals.” Johnson noted he is not opposed to EVs generally, just the credits, saying “we should end them.” Senator John Kennedy (R-LA) likewise asked, “If electric cars are so swell how come we have to pay people to drive them?”
Jenkins noted the higher upfront costs of electric vehicles — which he put at $10,000. That cost, however, “is declining substantially,” according to Jenkins, and the credits serve as “a temporary intervention to help the auto industry substantially compete in global markets and to transition.”
Kennedy also pressed witnesses on the cost of EV tax credits this year to taxpayers. Jenkins cited a Treasury report he said put year-to-date spending at $1 billion. He estimated that would rise to $2 billion by the end of the year.
But Jenkins had a caveat — he sees spending on the credits as a long-term investment “worth making” that both “allows American consumers to become familiar with the environment and American businesses to innovate and to compete within that stable framework.” In that sense, Jenkins explained, the benefits of the credits exceed the costs.
Senator Debbie Stabenow (D-MI) said that “Congress picked a winner” when it began “heavily subsidizing oil production” in 1917. She also noted that the Chinese government has “heavily subsidized” EV development, paving a way for Chinese manufacturers to “corner the EV market.” She advocated for a “level playing field” for EV automakers in the US.
Current EV credit.
The design of the current credits came under attack as well, as confusing and difficult to obtain. Jenkins noted that “point-of-sale” EV credits only became available this January, and that “consumers are just getting familiar with how these tax credits work.”
Even Stabenow, who owns an EV and is supportive of EV credits, said “unfortunately, the latest round of tax credits are so complicated and limiting that … it’s certainly not helping as much as it could help.” Hearing witnesses who told lawmakers they had an EV likewise admitted that they had not been able to take advantage of the credits.
The latest round of EV regulations, issued in May, are under attack by House Republicans. A joint resolution (HJ Res 148) to disapprove the regulations under the Congressional Review Act passed out of the Ways and Mean Committee in July. Republican lawmakers contend the regulations’ critical mineral sourcing provisions do not go far enough to hold off China’s supply chain dominance. Some also argue the credits primarily benefit “rich” taxpayers.
And a day later, during a Senate Appropriations Committee markup of a bill to fund Treasury and the IRS, the EV credit came under further attack. Senator Marco Rubio (R-FL) proposed an amendment to require vehicles to comply with the United States-Mexico-Canada trade agreement’s “rules of origin” to be eligible for any federal EV program. That amendment was ultimately rejected, however, in favor of a more modest proposal put forth by Senators Joe Manchin (I-WV) and Jon Tester (D-MT).
Hours later, Senator John Thune (R-SD) further critiqued the EV credits while speaking on the Senate floor about the Wyden-Smith tax package (HR 7024). Thune said the credits were an attempt by the Biden administration “to force the widespread adoption of electric vehicles” “at a time when our electric grid is barely keeping up with current demand.”
Fuel taxes.
Witness Jeff Davis of the Eno Center for Transportation focused his Budget hearing remarks on gasoline and diesel fuel taxes, which he explained go into the Highway Trust Fund for spending on “specific highway programs.” That fund has been insolvent since 2008, said Davis, and he cautioned that a move toward “rapid electrification of the U.S. vehicle fleet” would worsen the fund’s “imbalance.”
“There are alternatives to motor fuel taxes that could maintain the user-pay, user-benefit paradigm that underlies federal trust funds,” said Davis, “but none are as easy to administer as the gas tax.”
For more on clean vehicle tax credits, see Checkpoint’s Federal Tax Coordinator ¶ L-18000 et seq.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.
